Charles River upgraded to Outperform from In Line at Evercore ISI
Evercore ISI upgraded Charles River (CRL) to Outperform from In Line with a price target of $170, up from $135, following Q1 earnings and the cooperation agreement with Elliott. Reasons for the upgrade following today's print include the fact that bookings reaccelerated quarter-over-quarter for the first time since 2022, updated disclosure on NAMs after last month's FDA recommendation to shift away from animal-based testing for mAbs, the company's 'enviable market position as a key preclinical development partner' and valuation, the analyst tells investors.
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Lab services company Charles River Laboratories (NYSE:CRL) reported Q1 CY2025 results exceeding the market's revenue expectations , but sales fell by 2.7% year on year to $984.2 million. Its non-GAAP profit of $2.34 per share was 12.8% above analysts' consensus estimates. Is now the time to buy CRL? Find out in our full research report (it's free). Revenue: $984.2 million vs analyst estimates of $941.3 million (2.7% year-on-year decline, 4.6% beat) Adjusted EPS: $2.34 vs analyst estimates of $2.07 (12.8% beat) Management raised its full-year Adjusted EPS guidance to $9.55 at the midpoint, a 2.1% increase Operating Margin: 7.6%, down from 12.5% in the same quarter last year Organic Revenue fell 1.8% year on year (-3.3% in the same quarter last year) Market Capitalization: $7.42 billion Charles River Laboratories' first quarter results reflected a period of stabilization amid shifting regulatory and market dynamics. Management attributed performance to stronger-than-expected demand in the Drug Discovery and Safety Assessment (DSA) segment, particularly from global biopharmaceutical clients seeking quicker study starts. CEO Jim Foster emphasized the company's ongoing adaptation to regulatory developments, notably the FDA's push for New Approach Methods (NAMs) to reduce animal testing in preclinical research. Segment performance was mixed, with resilience in research models and manufacturing partially offset by declines in certain specialty areas. The leadership team acknowledged that industry headwinds, such as government funding cuts and persistent uncertainties in biotech funding, continue to weigh on near-term visibility. CFO Flavia Pease credited cost-saving initiatives and improved study mix for supporting operating margins despite the revenue decline. Looking ahead, Charles River Laboratories' outlook is shaped by cautious optimism regarding market stabilization and the gradual adoption of alternative testing methods. Management raised its full-year adjusted EPS guidance, citing improved DSA bookings and a more favorable study mix, but remains wary of potential headwinds. CEO Jim Foster explained, 'We are modestly increasing our full-year revenue guidance for the DSA segment based on improved bookings, though we are not assuming this trend will persist into the second half.' The company is closely monitoring regulatory changes, particularly the FDA's evolving stance on NAMs, as well as broader factors such as NIH funding and tariffs. Strategic investments in non-animal platforms and continued cost discipline are expected to be key contributors to future performance. Management linked the quarter's outperformance to a rebound in DSA bookings, cost savings from restructuring, and incremental progress in alternative testing methods. The company also highlighted the impact of regulatory changes and evolving client demand on its business mix. DSA bookings rebound: The DSA segment saw its net book-to-bill ratio rise above 1x for the first time in over two years, driven by improved bookings from global biopharma clients and fewer cancellations across all customer segments. Management noted that much of this activity was due to studies with faster start dates, reflecting a shift toward shorter-term project commitments. NAMs and regulatory alignment: CEO Jim Foster addressed the FDA's recent push towards New Approach Methods (NAMs), which aim to reduce animal testing in drug development. While acknowledging the gradual nature of this shift, management emphasized Charles River Laboratories' investments in NAMs platforms, such as organ-on-a-chip and in silico (computer-based) modeling, and reported approximately $200 million in annual DSA revenue from NAMs-related services. 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